Food Marketing and Globalization of Food Supply Chain

Supply Chain Management Series:

Food Marketing and Globalization of Food Supply Chain

Vijay Sardana

This article was Published in Processed food Industry Magazine

Consumers have begun purchasing more high-value food items (such as meat, dairy, pasta, and frozen vegetables) in comparison to staple items like rice and wheat. Global sales of high-value products have thus been growing, with sales increasing since 1998. Indian food suppliers have also responded to this expanding consumer demand by importing high-value foods from around the world. Moreover, food manufacturers have invested in processing facilities in many countries keeping in mind emerging opportunities due to free trade agreements. The choice to import or produce locally depends on the nature of the product, trade and domestic policy issues, and other factors affecting transaction costs. Global food markets have now become more competitive and trade in high-value products has slowed as more high-value products are being produced locally. It is not necessary that with liberalization the food trade will increase. It may lead to more investment in the country and therefore increasing competition in the market. This can also put pressure on profits.

Segments of Food Supply Chain and Trade

Food trade is often categorized based on the level of processing:

• Traditional bulk commodities such as wheat, rice, and corn;
• Horticultural products such as fresh fruits and vegetables;
• Semi-processed products such as flour and oils; and
• Processed food products such as pasta and prepared meats.

Horticultural, semi-processed, and processed products are considered high-value products depending upon many factors. Unlike bulk commodities, high-value products often offer convenience in the form of ready-to-eat and are generally more perishable by nature. These characteristics make high-value products subject to greater quality and safety scrutiny compared with bulk agricultural commodities.

Food suppliers sometimes choose to meet consumer demand through locally processed food products rather than through imported food. Also, domestic and trade policies and regulations can be impediments for trade in high-value products.

Globalization will remain the key driver

Food marketing is going international. Around the world, food processors, wholesalers, and retailers, as well as food service firms, are looking to foreign nations to expand their markets. The interesting part of the trade is Indian companies are looking abroad and foreign companies are looking at Indian Markets. Global perspective and action plan to capture local markets have now become important.

Global reach of supply chain is important

Recent developments have given encouragement to Indian food companies to think global. The acquisition by Indian companies clearly indicates that many entrepreneurs have started looking forward in aggressive manner and willing to fight the marketing battle from front in the marketing warfare. At the same time, foreign firms are gaining ground in other foreign markets by purchasing firms and establishing affiliates here. It is important to note the changes in corporate structures, for example the well known U.S. brands like Pillsbury's now owned by a British firm, Grand Metropolitan, PLC. Nestle, based in Switzerland, operates 421 plants in 60 countries. Sixty-seven of these plants are in the United States. Burger King and Roy Rogers are US popular brands but are managed by now foreign-owned companies.

Foreign markets provide opportunities for expansion

While many large food processing firms have gone international, most are not major exporters especially of highly processed consumer food products. The world’s largest food processors continue to expand aggressively in international markets by increasing their investments in foreign plants or expanding licensing arrangements with foreign firms to produce and distribute their branded products. Nestle, for example, recently signed a joint venture agreement with General Mills to produce and market General Mills cereals, as well as jointly develop new brands. Philip Morris announced its acquisition of Jacobs Suchard, the largest confectionery firm in Europe, with annual sales of about $4.5 billion. Tata Group has acquired equity stakes in US Beverage Company, British Tea Company, Thaper Group acquired European food company to expand its operation in Europe.

Strategic benefit in investing in supply chain

Establishing production facilities in other countries avoid tariff and most non-tariff trade barriers. But even where trade barriers are minor, many firms apparently prefer producing in the other countries rather than exporting the products there. Those firms find it easier to deal with local governments and regulatory agencies when the product is produced in the host country. For consumer value-added products, it is also easier to keep abreast of local tastes and opportunities for new product development or reformulations when products are produced in that country. Lots of Food MNCs develop good linkages with authorities and the benefits are visible in the market place at the time of controversies.

Some firms prefer to acquire established brands in foreign countries and use those facilities as a base for further expansion. Furthermore, producing a product in a foreign plant may improve access to local food distribution firms and facilitate a variety of marketing and promotional activities.

Changing retail pattern for food products

Unlike the processing sector, emerging food retailing companies are almost entirely domestic-market oriented. The major announcements by big players in India clearly indicate that domestic marketing scenario offers a huge opportunity to make profit in food marketing business. The profit making options are growing, starting from better products to better management.

Foreign firms in the domestic food markets

While foreign companies are increased their investment, Indian firms have also started looking at foreign food marketing operations.

As the situation emerges, foreign firms will be investing more in Indian food retailing at a much faster rate than their Indian counterparts. Indian companies are also expanding into foreign countries. In spite of restricting regulations the stock-holding and internal growth of large retailers in India and many other countries and the fluctuating foreign currency have encouraged foreign investment in Indian food processing and retailing.

Foreign food service firms expanding into Indian markets

McDonald, Burger King, Pizza Hut, Pizza Express, Subway, etc are now common names in Indian market place. At the same time, Indian brands like Nirula’s, Barista, etc are yet to learn the tricks of the trade to expand the operation with same professional approach outside their home towns.

Need to have strategies to access international food markets

There are many strategies that firms can use to enter foreign markets. Some involve considerably more investment of time, money, and expertise than others, with greater risk. Most firms enter the export market by using foreign agents or brokers. As export sales increase, many firms set up separate export offices or divisions.

Indian food companies can also think of franchise models to expand their presence in other markets. Food companies may also choose to produce and market their branded products in foreign countries under licensing agreements with foreign firms.

While this generally requires no direct investments in foreign production facilities, but considerable skill and investments are required to identify appropriate licensees, develop production and marketing procedures, and establish quality control safeguards. Joint ventures allow food companies to tap into the production, marketing, and regulatory know-how of host-country companies without the expense of acquiring wholly owned subsidiaries. Finally, food processors can acquire or build foreign manufacturing facilities and operate them as wholly owned subsidiaries. In actual practice, firms can use any one or all of these strategies at the same time.

Changing food processing around the world

Food Markets are changing around the world. because of various factors affect the trade. Some of them are:

• Food safety Regulations
• Environmental issues
• Investment regulations
• Food Regulations
• Animal Welfare Issues
• Changing Purchasing power
• Fuel prices
• WTO agreements
• Free Trade Agreements
• Role of supermarkets, etc.

There are many factors which are reflecting the changing pattern of consumer behaviour, purchasing power and concern of public health and other important issues.

Indian food markets are set to change

The recent developments in Indian food markets will have long term impact on the food processing and marketing activities in Indian Markets.

The new food laws and amendments in the existing rules and regulations will force companies to ensure food safety and accountability. This will improve professionalism in the industry and will encourage fair competition among good players.

The food safety debate in the media has contributed a lot to improve the food safety discussions in the country. We are likely to witness new regulations to protect consumer interests in coming days. All of these developments will enhance investments by large players in supply chain and marketing of food in the country.

Exciting times are here in the food industry. All stakeholders in the supply chain and marketing of food products are bound get affected by these new developments.

The other articles in the series will cover all the important topics in forthcoming issues.

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